Question

Lynch Company manufactures and sells a single product. The following costs were incurred during the company's first year of operations: Variable costs per unit: Manufacturing: Direct materials Direct labor Variable manufacturing overhead Variable selling and administrative Fixed costs per year: Fixed manufacturing overhead Fixed selling and administrative $ $ $ 12 5 1 1 $360,000 $ 270,000 During the year, the company produced 36,000 units and sold 18,000 units. The selling price of the company's product is $55 per unit. Required: 1. Assume that the company uses absorption costing: a. Compute the unit product cost. b. Prepare an income statement for the year. 2. Assume that the company uses variable costing: a. Compute the unit product cost. b. Prepare an income statement for the year. Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Req 2A Req 2B Compute the unit product cost. Assume that the company uses absorption costing. Unit product cost Req1A Req 1B >

Answer 1

Answer:-1-a)-Unit product cost under Absorption costing:-Direct materials + Direct Labor+ Variable manufacturing overhead + fixed manufacturing overhead

=$12+$5+$1+$10

= $28 per unit

Explanation:- Unit fixed manufacturing overhead= fixed manufacturing overhead/No. of units produced

=$360000/36000 units

=$10 per unit

1-b)-

Lynch Company
Income statement (Using absorption costing approach)
Particulars			Amount
			$
Sales (a)	18000 units*$55 per unit		990000
Less:- Cost of goods sold (b)
Opening inventory
Add:-Cost of goods manufactured		1008000
Direct materials	36000 units*$12 per unit	432000
Direct labor	36000 units*$5 per unit	180000
Variable manufacturing overhead	36000 units*$1 per unit	36000
Fixed manufacturing overhead		360000
Cost of goods available for sale		1008000
Less:- Closing inventory	18000 units*$28 per unit	504000	504000
Gross margin C= a-b			486000
Less:-Variable selling & administrative exp.	18000 units*$1 per unit		18000
			468000
Less:- Fixed costs
Selling & administrative exp.			270000
Net Income			198000

2-a)-Unit product cost under Variable costing:-Direct materials + Direct Labor+ Variable manufacturing overhead

=$12+$5+$1

= $18 per unit

2-b)-

Lynch Company
Income statement (Using variable costing approach)
Particulars			Amount
			$
Sales (a)	18000 units*$55 per unit		990000
Less:- Variable cost of goods sold (b)
Opening inventory		NIL
Add:- Variable cost of goods manufactured		648000
Direct materials	36000 units*$12 per unit	432000
Direct labor	36000 units*$5 per unit	180000
Variable manufacturing overhead	36000 units*$1 per unit	36000
Variable cost of goods available for sale		648000
Less:- Closing inventory	18000 units*$18 per unit	324000	324000
Gross contribution margin C= a-b			666000
Less:-Variable selling & administrative exp.	18000 units*$1 per unit		18000
Contribution margin			648000
Less:- Fixed costs
Manufacturing overhead			360000
Selling & administrative exp.			270000
Net Income			18000